Crimson Exploration Announces First Quarter 2013 Financial Results and Provides an Operational Updat

Crimson Exploration Announces First Quarter 2013 Financial Results and Provides an Operational Update

HOUSTON--(BUSINESS WIRE)-- Crimson Exploration Inc. (NasdaqGM:CXPO) today announced financial results for the first quarter of 2013.

Highlights

• First quarter Revenue of $24.1 million and EBITDAX of $15.5 million

• Average production of 35,924 Mcfe per day exceeds guidance, current production of 39,750 Mcfe per day

• Crimson successfully drilled the Beeler #2H, its first well targeting the Buda formation

• Crimson Exploration Inc. and Contango Oil & Gas Company jointly announced the signing of a merger agreement for an all-stock transaction

Management Commentary

Allan D. Keel, President and Chief Executive Officer, commented, "In the first quarter of 2013, we continued to successfully execute our drilling program in the Woodbine formation having previously announced the Nevill-Mosley #1H and the Mosley B #1 wells and brought the Covington-Upchurch online in Grimes County. In Dimmit County, Texas, we successfully drilled our first well in the Buda formation an area that we believe will provide us with another high quality area of oil potential. Going forward, our goal is to further grow crude oil and liquids production by continued development in the Woodbine and Buda formations."

Summary Financial Results

The Company reported Adjusted EBITDAX, as defined below, of $15.5 million in the first quarter of 2013 compared to Adjusted EBITDAX for the prior year quarter of $16.4 million. Net loss for the first quarter of 2013, exclusive of special non-cash charges discussed below, was $3.0 million, or ($0.07) per basic share, compared to a net loss of $3.6 million, or ($0.08) per basic share, in the first quarter of 2012. Net loss including those special charges was $4.7 million, or ($0.11) per basic share, for the first quarter of 2013 compared to a net loss of $4.4 million, or ($0.10) per basic share, for the first quarter of 2012. Special non-cash items impacting the first quarter of 2013 were a $0.8 million non-cash impairment of unproved leasehold costs and an unrealized pre-tax charge of $1.9 million related to the mark-to-market valuation requirement on commodity price hedges. In the first quarter of 2012, the Company recognized an unrealized pre-tax charge of $0.5 million related to the mark-to-market valuation on commodity price hedges and a $0.7 million impairment charge on unproved leases.

Revenues for the first quarter of 2013 were $24.1 million compared to revenue of $26.7 million in the prior year quarter. Revenues decreased as a result of a 7.4% decline in equivalent production volumes and a 2.5% decrease in realized equivalent prices. The decrease in equivalent production volumes was primarily from a 16% decrease in natural gas production while the decrease in equivalent realized prices was primarily from a 44% decrease in natural gas liquids realizations.

Production for the first quarter of 2013 was approximately 3.2 Bcfe, or 35,924 Mcfe per day, compared to production of approximately 3.5 Bcfe, or 38,364 Mcfe per day, in the first quarter of 2012. Crude oil and natural gas liquids production was 44% of total production in the 2013 quarter compared to 38% of total production in the prior year quarter. The performance of wells brought on line during the quarter, complimented by a successful workover program, positioned the Company to exceed its first quarter production guidance of 34,000 - 35,000 Mcfe per day. Daily production is currently approximately 39,750 Mcfe per day, 45% of which is oil and liquids.

The weighted average sales price in the first quarter 2013 (before the effects of realized gains/losses on commodity price hedges) was $7.47 per Mcfe compared to an average sales price of $7.25 for the first quarter of 2012. The weighted average price realized in the first quarter of 2013 (including the effects of realized gains/losses on commodity price hedges) was $7.45 per Mcfe compared to an average realized price of $7.64 per Mcfe for the first quarter of 2012. The decrease in realized prices in the first quarter of 2013 was due to the expiration in 2012 of more favorable natural gas hedges put in place during a higher commodity price environment in January 2011.

Lease operating expenses for the first quarter of 2013 were $3.3 million, or $1.01 per Mcfe, compared to $4.6 million, or $1.33 per Mcfe, in the first quarter of 2012, a decrease resulting from lower workover cost. In the first quarter of 2013, lease operating expenses were below guidance of $4.6 - $4.8 million as expense workovers were less than planned for the quarter.

Production and ad valorem taxes for the first quarter of 2013 were $1.7 million, or $0.52 per Mcfe, compared to $1.4 million, or $0.40 per Mcfe.

Depreciation, Depletion and Amortization ("DD&A") expense for the first quarter of 2013 was $12.8 million, or $3.97 per Mcfe, compared to $14.5 million, or $4.14 per Mcfe, for the first quarter of 2012, a decrease resulting from a lower overall DD&A rate and lower production volumes.

General and administrative expense in the first quarter of 2013 was $4.3 million, or $1.33 per Mcfe, compared to $4.8 million, or $1.37 per Mcfe, in the first quarter of 2012. Cash general and administrative expenses for the first quarter of 2013, exclusive of non-cash stock option expense recognized, was $3.7 million, or $1.13 per Mcfe, compared to $4.2 million, or $1.21 per Mcfe, for the first quarter 2012, a decrease resulting from lower personnel and facility costs.

Capital expenditures for the first quarter of 2013 were $11.2 million consisting primarily of approximately $10.5 million in Madison and Grimes counties, Texas and $0.5 million in South Texas. Crimson continues to execute an oil and liquids-rich focused drilling program with current and future activity targeting the Woodbine formation in Madison and Grimes counties and the Buda formation in South Texas.

Drilling Update

Buda formation

In Dimmit County, Texas, Crimson successfully drilled the Beeler #2H, its first well targeting the Buda formation, and anticipates full flowback operations to commence by mid-May. The well was drilled to a total measured depth of 11,013 feet, including an approximate 3,700 foot lateral, and will be completed naturally without fracture stimulation. The total cost to drill and complete the Beeler #2H was below the Company's initial estimates of $4 million.

Crimson is very encouraged about the Buda potential, and views this area as another opportunity for oil and liquids growth. The Beeler #2H is located in Crimson's Booth-Tortuga Area where the Company currently has approximately 8,475 gross acres. Crimson plans to spud its second well targeting the Buda formation in early third quarter 2013.

Woodbine formation

In Madison County, Texas, the Payne B #1H (84.1% WI) well, targeting the Woodbine formation, was drilled to a total measured depth of 15,900 feet, including a 6,700 foot lateral. Crimson is currently completing the well with first production expected by the end of May. The well is anticipated to be completed with 24 stages of fracture stimulation.

Approximately one mile northwest, the Grace Hall C (Allocation) Unit #1H (62.6% WI) well, targeting the Woodbine formation, is currently drilling at 8,899 feet toward a total measured depth of 15,259 feet, including a 6,000 foot lateral. The Grace Hall C (Allocation) Unit #1H is approximately 2,500 feet away from the Mosley B #1H (82.8% WI) well which came online in April 2013 at an initial production rate of 1,143 boepd. The well is anticipated to be completed with 22 stages of fracture stimulation with first production expected by the end of June. Upon completion of drilling operations, the rig will move approximately 9 miles southeast to begin drilling the Stuckey-Upchurch #1H well in Crimson's Iola-Grimes Area.

In Grimes County, Texas, Crimson was notified by its midstream provider that the Central NGL Refrigeration Unit is fully operational and able to process hydrocarbons from the Covington-Upchurch #1H (67.8% WI) well drilled and completed in the fourth quarter of 2012. The well had been producing from the Woodbine-Lewisville Sand at a restricted rate of 2,500 Mcfepd (1,900 Mcfpd and 100 barrels of oil) on a 14/64^th inch choke through-out the delay of plant start-up and was recently increased to 5,881 Mcfepd, or 4,021 Mcf, 183 barrels of condensate and 127 barrels of natural gas liquids, on a 27/64^th choke, with 1,400 psi of flowing tubing pressure.

Subsequent Event

In an 8-K dated April 30, 2013, Crimson Exploration Inc. ("Crimson") and Contango Oil & Gas Company ("Contango") jointly announced that they have signed a merger agreement for an all-stock transaction pursuant to which Crimson would become a wholly-owned subsidiary of Contango. Upon consummation of the merger, each share of Crimson stock will be converted into 0.08288 shares of Contango stock resulting in Crimson stockholders owning 20.3% of the post-merger Contango.

Following the merger, the combined company will be a premier Houston-based independent oil and gas company with a balanced offshore Gulf of Mexico ("GoM") and onshore Texas profile. The combined company will offer a deep inventory of high-impact GoM prospects complemented by Crimson's onshore oil and natural gas liquids-focused, lower-risk unconventional resource positions in several prolific plays.

Pro forma for the merger, net daily production for the combined company for the quarter ending March 31, 2013 would be approximately 101 Mmcfe (31% oil and natural gas liquids) and total proved reserves are estimated to be approximately 312 Bcfe (31% oil and natural gas liquids), based on SEC pricing at March 31, 2013. Pro forma PV-10 of the estimated proved reserves of the combined company would be approximately $932.5 million. The enhanced size and scale of the combined company and its conservatively capitalized balance sheet will position it to implement an accelerated oil and natural gas liquids-focused drilling program.

The merger is subject to the approval of the stockholders of both Contango and Crimson as well as customary closing conditions. The Estate of Kenneth R. Peak, Brad Juneau, members of the management teams of Contango and Crimson, and affiliates of Oaktree Capital Management (Crimson's largest stockholder) have all entered into voting agreements in support of the transaction. The merger is expected to close in the third quarter of 2013.

Selected Financial and Operating Data

The following table reflects certain comparative financial and operating data for the three month periods ending March 31, 2013 and 2012: